Earnings Season Impacts Dollar Trade

Apr. 14, 2011 10:16 AM ET

Global trading patterns have remained choppy and overlapping going into the last two trading sessions of the week, with economic headlines and central-bank speeches dominating the intraday sentiment and direction of equity, interest rate, and commodity market trade. It has been noted over the last six months of daily client note updates that the impact of the Federal Reserve's quantitative easing programs cannot be underestimated in regard to the disruption caused to historical market correlations. New-generation traders are now aligned to trading patterns that unfold, develop, and then complete in a 24 hour period of trade, that not so long ago a would have taken days and weeks to even develop.

The dollar index continues its sideways chop across the one-hour time frame chart, and continues to look directionless, and to some degree lost, in regard to potential direction. Since November of 2010 the inverse US dollar correlation to equity and precious metal market trade has been lost. Current trading conditions are allowing all asset classes to either float, or drop, at the same time, in the same direction, which is the same pattern seen in 2009 and 2010, just before major market corrections.

The disruption to inversely correlated links within the global markets, that have become dependent on drip fed liquidity from a third-party to backstop risk, will soon have to face the reality of quantitative easing ending, and tightening of central-bank policies.

As first-quarter 2011 earnings season gets underway traders will have to get used to a new pattern of trade that switches attention back to Wall Street after-market and pre-market trade, as a news headlines cross the wires in regard to bell-weather companies hitting or missing expected earnings season targets. It would seem that the balance of April trade will be dominated by intraday break-outs and reversals that are very unlikely to break daily and four hour-chart ranges. There will need to be a dramatic increase in participation levels if support or resistance areas are going to break and easily hold. At this point in time there would seems to be as much money is sitting on the sidelines watching, as there is cash in the market.

The LFB trade desk will be concentrating on intra-day signals and alerts for the rest of this week, and will be looking at the weekly chart closes on Friday to determine the potential for next week's movement. The outlook for each individual market, and the technical potential for each asset class, has been covered In the Apr 14 11 Global Video Charting, which is posted to the LFB website, and available in the links below.